RR #129 - Five Factor Investing with ETFs

After months of research, number-crunching, and receiving listener requests on the subject, today’s episode is devoted to introducing our new model ETF portfolios — which promise to offer a smoother ride to getting reliable returns. We open our conversation with a financial news roundup and by touching on our book of the week. We then dive into the theory behind our model by first exploring how market assets are priced. We discuss historical views on asset pricing models before looking at what academia has done to overcome challenges to the idea of market efficiency. Host Benjamin Felix methodically shows how our model addresses the five systematic risk factors that are included in the Fama-French Five-Factor Model. From emerging markets to stock size, we share insights into what our model accounts for and how this should impact your portfolio distribution and premium expectations. After reflecting on how factor-loaded indexes get higher returns without extra risk, we talk about the ETFs that we use for factor exposure, as well as how you can apply our findings to your portfolio. We round-off today’s show by chatting about the latest bad financial advice. Tune in to hear more about our findings in this, our last episode of 2020.

Links From Today’s Episode:

[amsalmeron]

This has been one of the most valuable things I've ever seen on YouTube. Thank you so much for this!

[pablopiquante]

FANTASTIC PODCAST AND CHANNEL!!! Just discovered this last week and have listened to/ watched many episodes. Thank you very much for helping to enlighten investors.

[danraes]

Greeting from Romania and the UK. This is a very insightful podcast as always.
Ben, I truly see you as a mentor. You really inspire me to do research and back my thinking with quality data.

Best Wishes,
Rares

[georgezuwala]

Calm cool intelligent, useful videos. Keep up the excellent work. Very rare this type of quality of youtube.

[travisbritt]

Thanks guys, great content again. I have now relentlessly forwarded so many of your youtube links to friends and fam on the US West Coast, I feel I could qualify as an honorary rational reminder marketing intern. Keep it up.

[xbrain]

Hello Ben and Cameron.

First of all a big thank you for all the incredible content. You guys helped me understand so many things that I feel confident enough in making my own investment decisions.

I have a question about the model portfolios. How are dividends considered ? Are they reinvested ? If that's the case at what tax level ? I am asking because I ran a few simulations.
If the model portfolios ignore dividends and I am willing to reinvest them, then the 80/20 portfolio beats the 100/0.

Oh by the way, on the 100/0 portfolio one shade of gray is wrong on the chart ;).

[andresen]

I want the hoodie. I never buy stuff like this but i love that hoodie. Plus you helped me ALOT

[BitsOfInterest]

14:20 the title topic starts
1:03:10 ETF portfolio

[bearnest]

Would appreciate a five factor model for a U.S.-based investor.

[pezata]

Ben, in one of your papers you recommend that the US equity part of the portfolio consist of 1/3 total market, 1/3 large value and 1/3 small value ETFs, but how would those ratios change if one were to use AVUS or the new DFA US ETFs instead of ITOT, VTI or a similar total stock market fund? Should the use of those more tailored ETFs prompt a lesser allocation to large value?

[arnaldobermudez]

I said it before and i will say it again, Cameron and Ben work so well together both vital parts of the podcast. Great episode, i can't really use the portfolios but i got great general knowledge.

[briansmith]

One of your best and most informative podcasts. Keep up the great work.

[anonymousswimmer]

I feel like ben never cares for cameron's book and tv recommendations 😂"Cool"

[conw_y]

Can you guys produce a meditation track consisting of new age synth chords with Ben & Cameron’s voices explaining the small value premium drifting in and out?

[Steven-wqtx]

So for someone like me who’s invested in VGRO, it’s probably best to wait for vanguard or Ishares to release ETFs that can increase my exposure to small cap value stocks. I buy VGRO for the simplicity and I’m not really one to think about buying USD listed ETFs because of the currency transaction costs and tax withholdings

[og]

Model portfolio is pretty close to VEQT + a VVL or value exposure. Cool

[chris]

Great podcast thanks for the info! Where can i find the pdf and look through the numbers?

[mangoh]

Love this podcast! Thanks for the great content.

[InvestitorulInteligent]

Since as Europeans we don't have access to small cap value ETFs in UCITS format, should we add additional tilts to small cap blend asset class or stick to the large + medium cap market return of Vanguard FTSE All World?

[sshrinivasan]

Please differentiate US listed ETFs, since that kind of a big deal for many Canadian investors (in the actual PDF)!